Solve the problem.
-A computer software company sells 20,000 copies of a certain computer game each year. It costs the company $1.00 to store each copy of the game for one year. Each time it must produce additional copies, it costs the
Company $625 to set up production. How many copies of the game should the company produce during each
Production run in order to minimize its total storage and set-up costs?
A) 5000 copies in 4 production runs
B) 20,000 copies in 1 production run
C) 10,000 copies in 2 production runs
D) 4000 copies in 5 production runs

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) model is used to minimize total costs. The EOQ formula is √(2DS/H), where D is demand (20,000), S is setup cost ($625), and H is holding cost per unit ($1). Calculating gives EOQ = √(2*20000*625/1) = 5000 copies.

Solve the Problem. -A Computer Software Company Sells 20,000 Copies of a Certain